Any business with employees is required to withhold payroll taxes from employees' paychecks and to pay applicable federal, state and local taxes. The taxes usually withheld from employee paychecks include FICA (Medicare and Social Security taxes) and federal, state and local income taxes, if applicable. Other withholding obligations include FUTA (Federal Unemployment Tax Act) in states such as California, Hawaii, New Jersey, New York and Rhode Island, disability insurance taxes. Failure to pay taxes or missing a payment may result in heavy fines and penalties, so it is important to calculate the amount of payroll taxes owed and to pay them on time. (Proper bookkeeping is essential for small businesses. Read Six Steps To A Better Business Budget to learn how to manage revenue and expenses.)
If the small-business owner does not have outside employees but is incorporated, the above rules apply for the owner's paychecks as well, because he or she is essentially the sole employee of the corporation. If the business is not incorporated and there are no employees, the owner will need to pay estimated taxes on self-employment income each quarter. (Read Should You Incorporate Your Business? to find out if this business structure would be advantageous for you.)
Calculating Payroll Taxes
There are three steps to calculating payroll taxes:
Calculating payroll taxes can be very complicated, and it is important to send out payments on time to avoid penalties and late fees. Federal tax payments may be made either online through the Electronic Federal Tax Payment System (EFTPS), or through banks authorized to accept federal payments. If you use the latter method, each payment should be accompanied by Form 8109, which can be obtained by calling the IRS at 1-800-829-4933 or from the IRS website. FUTA taxes are usually paid quarterly and income and FICA taxes are deposited semi-monthly or monthly. The IRS usually sends business owners a notice at the end of each year detailing which method to use for the upcoming year.
In general, the timeliness of a deposit is determined by the date it is received. However, a mailed deposit received after the due date will be considered timely if you can establish that it was mailed at least two days before the due date.
Sat Mar 19, 2011 6:25 am
ankhanh New Member
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It is very nice to know this information! Thanks a lot!
Sat Aug 20, 2011 5:36 pm
soybean Full Member
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harjos, why didn't you insert links where you suggested reading some external document?
Regarding the calculation of payroll taxes and payroll tax deposits, software is obviously extremely helpful.
Regarding the various reporting requirements, reporting of payroll data to a Workers Compensation program is also a requirement in many states.
Thu Aug 25, 2011 5:40 pm
motlycru New Member
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good info harjos
Fri Oct 07, 2011 4:33 am
globaldoc2001 Senior Member
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I thinkl some companies are actually using particular softwares for the computation of taxes. From what I know, there are still companies that use manual systems for this. I am not sure about this. Personally, I think the use of softwares will be more reliable.
quote:Originally posted by globaldoc2001 From what I know, there are still companies that use manual systems for this. I am not sure about this.
I can't image doing payroll manually. Frankly, with small business software such as certain versions of Quick Books that can do payroll, I think manually doing it would be stupid, even for just a few employees.
quote:Originally posted by globaldoc2001 I thinkl some companies are actually using particular softwares for the computation of taxes.
Well, of course. Do you really think only a small percentage of companies are going to use software for this? Do you think most companies are going accept the inefficiency of a manual payroll process when software can do it much more efficiently and accurately? Practically all payroll is now done using software.
quote:Originally posted by globaldoc2001 Personally, I think the use of softwares will be more reliable.
Obviously, and especially true if payroll stubs/slips are issued to employees each payday showing current and cumulative withholdings for federal, state, and local income taxes, and for Social Security and MediCare, and, if applicable, contributions to 401K plans and other elective withholdings.